Dollar firm after U.S. payrolls do little to change Fed expectations

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TOKYO The U.S. dollar held firm in early Asian trade on Monday after disappointing U.S. jobs growth figures for August did little to change investors' perception that the Federal Reserve is likely to raise interest rates in coming months.

Nonfarm payrolls rose by 151,000 jobs last month, the U.S. Labor Department reported on Friday, below the 180,000 jobs that economists had expected.

Average hourly wage earnings, a key gauge of inflationary pressure, rose 0.1 percent, also fell short of market expectations of 0.2 percent increase.

Yet, with the average payroll increase over the last three months handily topping 200,000, investors concluded that the data would not be a serious blow to the Fed's plan to raise interest rates.

U.S.

"jobs growth figures for August did little to change investors' perception that the Federal Reserve is likely to raise interest rates in coming months.Nonfarm payrolls rose by 151,000 jobs last month, the U.S"Fed Funds futures price thus quickly gave up gains to stand almost unchanged from before the data, pricing in just over a 20 percent chance of a hike this month and more than a 60 percent chance by the end of year.

The dollar's index against a basket of six major currencies .DXY =USD managed to stay afloat, quickly bouncing back from one-week low of 95.189 touched just after the payroll data.

"The market's reaction is perfectly understandable. While the headline figure was weak, the data did not completely rule out the possibility of a rate hike in September," said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

Against the yen the dollar JPY= quickly jumped back to 103.74 yen after having fallen to 102.80 yen following the underwhelming U.S. payrolls data.

The euro EUR= hovered at $1.1155, not far from Wednesday's three-week low of $1.1123.

There was limited reaction so far to the defeat of German Chancellor Angela Merkel's Christian Democrats in a local election on Sunday.

CDU were beaten into third place after not only Social Democrats but also the anti-immigrant and anti-Islam Alternative for Germany (AfD) party in an election in her home district of Mecklenburg-Vorpommern.

The defeat, coupled with another drubbing that looms in two weeks in Berlin, is casting an ominous shadow over the Chancellor's hopes of winning - or even running - for a fourth term in 2017.

"In the long run, this could become a really big story, towards the German general election next year. If there are fears that countries like Germany and France want to exit the euro, talk of euro zone break-up may be rehashed for instance," Junya Tanase, chief currency strategist at JPMorgan Chase Bank.

The British pound GBP=D4 held relatively firm at $1.3293, having hit a one-month high of $1.3352 on Friday after a survey showed a downturn in Britain's construction sector was easing.

Coming after surprisingly resilient reading in UK manufacturing survey, the data helped to boost expectations that the economy is holding up well after the shock Brexit vote in June.

A two-day summit of leaders from G20 nations that began on Sunday has so far produced little in the way of market-moving headlines while U.S. president Barack Obama described his meeting with Chinese President Xi Jinping as "extremely productive".

A joint "fact sheet", issued a day after the bilateral talks, said China and the United States committed anew to refrain from competitive currency devaluations, and that China said it would continue an orderly transition to a market-oriented exchange rate for the yuan.

(Editing by Kim Coghill)

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